May 2010 – When is a director not a director?


Business Law Update
May 2010

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Gary CousinsWelcome to the Cousins Business Law ezine. The dust has now settled on the election and we’re starting to discover what our new Government has in store for us. The appointment of Vince Cable as Business Secretary is seen as a positive move for SMEs. Let’s see if he can keep the banks honest and get them lending again and whether the Conservative / Liberal alliance will do as promised and get rid of useless red tape.

This month we are launching our Quick Guide to Buying Business Premises, essential reading for anyone considering buying commercial property.

We hope you will find information relevant to your business in this month’s issue. Email your article suggestions or legal questions to


Gary Cousins
0121 778 3212

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When is a director not a director?

Whether you act as a director in an official capacity or take a director-like role without the title, there can be serious consequences for the unwary.

The problem is that, as far as the law is concerned, your responsibilities are the same whether you have the title of director but not the actual role, have the role without the title, or have both the role and title.

Directors are not just those who are registered as directors at Companies House. They are anyone who acts as a director, whether they are called directors or not. They include directors who have been appointed by the company but never properly registered. They also comprise those whom the law calls ‘shadow directors’: those who give directions and whom the company generally follows. These might commonly be business advisors, senior managers, ex-directors, shareholders or investors.

If a company runs into financial difficulties, then in certain circumstances, the directors can be held responsible and sometimes have personally financial liability. For more details read Directors’ responsibilities in times of financial trouble on our website.

The three groups who are most at risk are as follows:

Directors in name only

It is quite common for a long-standing employee to be offered a directorship. From the company’s point of view, this makes sense: it’s a way of incentivising important employees without having to increase their pay as much as would otherwise have been the case. But, from the employee’s point of view, this can be dangerous.

Many such people say that, apart from the title, nothing much else has changed: they don’t actually get involved in running the company and are often not given full financial information.

Advice: if this is you, demand to be kept fully informed and be involved in decision-making; otherwise, it’s best not to be a director.

Business Advisors doing more than advising

The position should be that advisors advise the directors and the directors direct the running of the company. The dangers come when the advisor starts making business decisions themselves. It seems to make sense: if the advisor is trusted and their advice generally followed, why not allow them to simply make decisions and bypass the directors?

However, this then opens them up to being deemed a director and, with it, all the legal responsibilities.

Advice: know the difference between advising and directing and make sure you always stay on the right side of the line.

Investors taking an active role in running the company

In these days of tight finances, many SMEs are borrowing from friends, relatives and private investors instead of banks. A sensible investor will take an interest in the company to ensure that their money is being used properly and is likely to yield a return. But, there’s a difference between taking an interest, and even imposing certain conditions, and actually making decisions about how the company is to be run.

Advice: your position is similar to advisors: make your conditions clear and then allow the directors to direct without doing this yourself.

For advice on the roles and responsibilities you may have as a director call Gary Cousins on 0845 003 5639 or email Gary here.

Plain English Legal Advice

Quick Guide to Buying Business Premises Launched

Don’t buy business premises without reading our essential new Guide.

The Cousins Business Law Quick Guide to Buying Business Premises, written specifically for family owned and owner-managed businesses, answers all the questions and concerns about the legal issues you MUST consider when researching and negotiating a commercial property purchase.

The Guide, prepared by lawyers who work daily in the arena of commercial property, shares years of invaluable experience, short cuts, and tips a lawyer wouldn’t normally hand out for free!

Download a copy of the guide now.

With tips on issues that may affect your ability to trade, what to look out for in the contract you are signing, why a deal that looks too good to be true probably is PLUS why your solicitor should inspect the premises with you this Guide is essential reading for anyone about to invest in commercial premises.

The Guide comes with details of the Cousins Business Law free “premises buying health-check” which we conduct over the telephone.

Download a copy of the Quick Guide to Buying Business Premises from our website or call Paul Harrison on 01604 456 591 or Steve Petty on 01926 629005 to take advantage of the premises buying health-check.

Legal update

Police harass licensed premises

It seems police forces around the UK are taking the law into their own hands when it comes to breaches in the conditions of a Premises Licence.

Under licensing law the police have no power to force pubs or any premises to close or cease licensable activities of selling alcohol, late night refreshment, or regulated entertainment. Only magistrates have the power to order that the premises cease licensable activities until a condition is complied with. The police may issue a closure notice, but it does not take effect until endorsed by the magistrates.

Recent press reports suggest that certain police forces are intent on forcing pubs to close in fear of prosecution if they fail to comply with a police request to close immediately. Police forces in Lincoln and Nottinghamshire are using this tactic, and the power behind the initiative is the Home Office. Whilst the police have no power to force pubs to close immediately it is easy to understand that most pubs will comply for fear that if they refuse they will face prosecution.

In the licensing trade this is seen as a punitive measure to punish an already struggling industry. Why else would they close a pub for not keeping CCTV footage for 30 days and not displaying its Premises Licence, or for displaying a photocopy of a Premises Licence rather than the original or certified copy? These are minor issues which could have been addressed without forcing a pub to close.

Anyone facing a request for immediate closure should take urgent advice before agreeing. If the breach of condition is minor, it is highly unlikely that the police would prosecute if you refuse to close and sort out the breach as soon as possible.

I wonder whether the police have been watching too much of DCI Gene Hunt in Ashes to Ashes. Perhaps the police are frustrated sometimes in dealing with the trade, but common sense and proportionate action would go a long way to creating the right atmosphere to solve any problems.

For advice on premises licensing issues contact Nigel Musgrove on 01285 847 001 or email Nigel here.

Britain’s most hated business laws

When the final Coalition Agreement was published last week, Nick Clegg announced that the government would be asking people what laws they wanted to be scrapped.

How this will work remains to be seen (and much legislation originates in the EU where the government has little control) but we decided to take Nick Clegg at his word and canvassed members of the team and business contacts for their most hated business laws.

The top five (in no particular order) are as follows:

  1. Much employment legislation and particularly the Working Time Directive that restricts employees to a 48-hour week unless they opt out. Because of the opt out, it is generally considered a voluntary code anyway, in which case, why have it?
  2. IR35 – the tax rules as to when someone is self-employed for tax purposes. As drafted, they are confusing and uncertain and restrict the labour market. The government has already stated it will replace this with a simpler system.
  3. HIPs and Energy Performance Certificates. They are another cost placed on anyone who wants to sell or let a property, and buyers or tenants don’t generally take a blind bit of notice of the rating anyway.
  4. The need for Designated Premises Supervisors for licensed premises. It is an unnecessary piece of red tape which adds to the cost of running premises and serves no useful purpose.
  5. The Producer Responsibility Obligations (Packaging Waste) Regulations 2007. This involves companies taking apart four samples of each product sold, separating the packaging from the product and then reporting their findings to the Environment Agency. It is an unnecessary and very costly burden for companies who sell on many different products and who have no control over packaging.

What are your pet hates? Join in the debate on the Cousins Business Law blog.

CBL Update

What does the coalition offer SMEs?

The long-awaited Full Coalition Agreement has now been published, which sets out what the coalition intends to do during its time in office.

Refreshingly, it has a section specifically on business, something which the individual party’s manifestos failed to do. Unfortunately, there are a lot of promises to “review”, “look into” and “consider”, which doesn’t help when SMEs are desperate for help.

The government’s main promises, as far as SMEs are concerned, are as follows:

  • Reducing red tape by introducing a “one in one out” policy whereby, if a department introduces new regulation, it must abolish at least as much existing regulation.
  • Focusing on “co-regulation and improving professional standards” rather than “tick box” regulation.
  • Introducing sunset clauses (whereby regulations only last for a certain amount of time unless actively renewed).
  • Giving the public the opportunity to challenge the worst regulations.
  • Reviewing IR35 to reduce administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.
  • Finding a way to make small business relief automatic.
  • Reforming the corporate tax system by simplifying reliefs and allowances, and tackling avoidance, in order to reduce headline rates.
  • Local authorities to take competition issues into account when considering retail planning issues.
  • Review of employment law.
  • Making it easier and quicker to create a company and moving towards a “one click” registration model.
  • Ending the ban on social tenants starting a home business.
  • Introducing an aspiration for putting 25% of State research and procurement contracts out to SMEs.
  • Considering implementing the Dyson Review to help hi-tech businesses.
  • Reviewing regulations concerning takeovers.
  • Ending the ‘gold plating’ of EU rules, so that British businesses are not disadvantaged relative to their European competitors.
  • Creating Local Enterprise Partnerships to take over from Regional Development Agencies other than in areas where the latter were popular.
  • Taking steps to improve the competitiveness of the UK tourism industry.
Useful Links

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